Market strategist: Rate hikes could be quite significant for banks
New York (CNN Business)Goldman Sachs had a phenomenal year. But like many of its competitors on Wall Street, the numbers just weren’t good enough to satisfy fickle investors.
The investment banking powerhouse said Tuesday that it earned $3.9 billion in the fourth quarter, or $10.81 a share. But analysts had been forecasting a profit of $4.1 billion, or $11.70 a share. Shares of Goldman Sachs tumbled nearly 8% on the news.
Goldman Sachs (GS), like many of its rivals, benefited from a boom in trading activity and as companies looked to go public or make acquisitions last year. Investment banking revenue soared 58% from a year ago in 2021.
Goldman Sachs said that overall revenue for the fourth quarter came in at $12.6 billion, topping forecasts and rising 8% from a year ago.
The company has also stepped up its efforts to cater to consumers and not just businesses, Goldman Sachs’ consumer and wealth management business, which includes the company’s Marcus online banking unit, posted record revenue last year.
For the full year, Goldman Sachs generated revenue of more than $59 billion and net income of $21.6 billion.
“2021 was a record year for Goldman Sachs. The firm’s extraordinary performance is a testament to the strength of our client franchise and people,” said Goldman Sachs CEO David Solomon in a statement. “Moving forward, our leadership team remains committed to growing Goldman Sachs, diversifying our businesses and delivering strong returns for shareholders.”
Solomon also warned investors on the company’s conference call with analysts that inflation brought about by rising wages and supply chain disruptions tied to the outbreak of the Omicron variant of Covid-19 will likely persist for some time.
“There’s no surprise that the recent surge in cases is putting even more pressure on supply chains. Inflation is persisting in many countries, and major central banks are beginning to raise rates,” Solomon said.
He added, “Inflation may be above trend for some time. And in the near term, inflationary pressures may continue to intensify before they start to decrease. I also believe that we could see more volatility as these easing policies are unwound.”
Still, Solomon expressed hope that the global economy will soon be past the worst of the Covid-19 pandemic. Goldman Sachs, like most other Wall Street firms, has delayed plans to have many of its employees return to its Manhattan headquarters.
“My view is that Covid-19 will be endemic and as a society, we will find a way to live with it, supported by the efficacy of vaccines and new treatments,” he said, adding that Goldman Sachs will need to be “flexible and dynamic with our protocols to adapt to this new state of the world while also enabling the majority of our people to be back in the office safely.”
Goldman Sachs had a lot of hype to live up to in its earnings report. Shares surged 45% in 2021, making Goldman Sachs the third best performer in the Dow, trailing only Home Depot (HD) and Microsoft (MSFT).
Shares of Goldman Sachs fell Friday, a day when JPMorgan Chase (JPM) and Citigroup (C) both reported earnings that weren’t strong enough to satisfy investors either.
Goldman Sachs employees benefited from the solid 2021 results though. The company said Tuesday it set aside $17.7 billion in compensation and benefits for its staff last year, an increase of 33% from 2020. That works out to an average of nearly $404,000 for the firm’s 43,900 workers.
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